Table of Contents
Defining FinOp: Key Takeaways
- The Finance and Operations Principal (FinOp) is a broker-dealer book management role required and defined by the FINRA Rule 1200 Series.
- Not to be confused with FinOps or the FinOp Foundation, which deals with cloud computing, a FinOp must ensure that a broker’s books are accurate and compliant.
- Companies can outsource or hire a FinOp in-house, however, they will still need accurate and transparent expense records to fulfill their responsibilities.
The Finance and Operations Principal (FinOp) is the primary go-to for ensuring financial regulatory compliance and protecting companies and customers alike from faulty business operations. Serving a wide variety of organizations, FinOps are responsible for much more than crunching numbers and scrutinizing the income statement.
It’s important to understand the nature of these responsibilities, as a skilled FinOp can help a business remain in good standing with regulatory bodies like the Financial Industry Regulatory Authority (FINRA) and Securities and Exchange Commission (SEC).
What is the Goal of a FinOp?
FinOp is a specific role dedicated to ensuring broker-dealers remain compliant and financially accountable. To better understand how a FinOp accomplishes this goal, or why it's even necessary, it helps to understand compliance agencies requiring broker-dealers to have FinOps.
Breaking Down FINRA’s FinOp Role and Certification
SEC is the governing authority to monitor trading entities, ensuring that markets remain fair and investors stay protected. But what about the non-governmental self-regulatory organizations (SROs) like FINRA?
FINRA, formerly the National Association of Securities Dealers (NASD), deploys a host of self-imposed, commonly agreed upon rules it enforces based on federal laws. As such, it acts as the dominant institution for licensing and regulating broker-dealers, currently overseeing more than 4,000 brokerage firms.
To remain in good standing with FINRA regulations, an organization’s FinOp must be registered with either a Series 27 (Limited Principal-Financial and Operations) or Series 28 (Limited Principal-Introducing Broker/Dealer Financial and Operations) certification. These certifications tell FINRA that a FinOp is capable of managing and executing the basic (albeit highly critical) functions associated with the position.
The type of certification also delineates where the FinOp is qualified to work. A Series 27 certification qualifies the FinOp to conduct their duties for virtually any broker-dealer, whereas the Series 28 does not. In practice, this means that a Series 27-qualified FinOp will be eligible to work for organizations that carry a higher net capital (the liquidity threshold a broker-dealer must maintain to protect its customers, counter-parties, and creditors in case things go badly for the business).
Per FINRA’s official website, broker-dealers that are required to carry at least $250,000 in net capital, as well as municipal securities brokers that require a minimum net capital of $150,000 (SEC Rule 15c3-1) must obtain a Series 27 certification.
Why Are Financial Operations Important?
Every business requires some level of financial operations, no matter its size or industry. This is because proper financial operation processes help companies to attract investors, maintain healthy cash flow, remain compliant, and prepare for growth.
What Are The Key Functions of Financial Operations?
A FinOp can wear a variety of hats within an organization. It’s typically assumed that they merely untangle financial statements and maintain net capital compliance. While an important part of the job, it’s not all they do. To maximize their utility, FinOps take net capital insights and project future movement. By projecting and analyzing a company’s position from an outside perspective, managers can more objectively determine the best way forward.
Some typical tasks for FinOps include:
- Accounting due diligence
- Annual audit support
- Bank reconciliation
- Form custody
- Net capital computations
- Supplemental schedule of income (SSOI)
Two significant responsibilities include FOCUS reporting and bookkeeping.
Filing FOCUS reports
Financial and Operational Combined Uniform Single (FOCUS) Reports, also fall within the FinOp’s wheelhouse. Beyond simply building and quality checking these documents, a good FinOp knows how and when to submit them.
For example, Part I of a FOCUS Report serves as an abbreviated list of the most essential data and is filed on a monthly basis. Part II is a much more detailed report and is submitted quarterly. Errors or missed deadlines are typically met with undue hassle in the form of audits and questions, so having a reliable FinOp to tackle these tasks is crucial. See our blog to learn more about what is an auditor.
The Ultimate Bookkeeper
Another aspect of a FinOp’s job description requires them to manage the books. FinOps not only tracks your organization’s reports, but supervises its overall performance and responsibilities under the SEC’s financial rules. In addition to handling all of your most important documents, FinOps can also assist with functions like report preparation, auditing assistance, and loan management.
Documents your FinOp will likely handle:
- General ledger
- Balance sheet
- Income statement
- Cash flow statement
- Reconciled bank statements
- Accounts payable reports
How Can I Streamline My Company’s Financial Operations?
There’s a few different ways that organizations can optimize their financial operations, although many strategies hinge on having proper digital infrastructure.
The first place to start is often mapping your processes and reviewing your tech stack. Investing in automated solutions, especially for AP/AR tasks, can greatly simplify your financial operations and boost data transparency.
However, you can also look at policy-based optimizations, such as standardizing your workflows, determining policies around contracts and procurement, and integrating your accounting and finance systems. Deciding whether outsourcing or maintaining an in-house FinOp professional can also further streamline your process and add clarity for your team.
Outsourcing vs. In-House: Where to Find Your FinOps Professional
Companies can either employ full-time FinOps or outsource the role. Most large, established companies prefer the former, as in-house FinOps allow organizations more control over internal processes and routines. This also ensures that the FinOp is completely dedicated to the business, rather than an outside employee who may also be managing other accounts.
Outsourcing FinOps is gaining popularity, however, partly due to the growing number of startups that simply cannot afford a full-time employee to serve in this role. Contract FinOps approach the role from an outsider's perspective, which can spark innovation. Additionally, they are likely to be more up to date on compliance regulations.
There are many FinOp outsourcing firms that help companies prepare and audit reports. They can operate on their own, review the work of your in-house professional, or assist the executive team with its strategic finance outlook.
Some of the organizations FinOps might serve in include:
- Institutional sales
- Integrated services organizations
- Retail broker-dealers
- Acquisition broker-dealers
- Investment banks
5 Best Practices For Optimizing Financial Operations
Since a FinOp is focused on financial compliance, much of the role hinges on proper documentation. Below are some best-practices to ensure your FinOp can complete their tasks efficiently:
- Streamline bookkeeping: Automated, real-time syncing can streamline your bookkeeping and ensure accurate records. This process will make things significantly easier for your FinOp.
- Capture detailed transaction information: Use specific and customized expenses in a detail-oriented spend management system to provide detailed transaction tracking.
- Implement role permissions and approvals: Create a chain of custody while securing your finances with nuanced permissions and an online approval process.
- Automate policy: Ensure that all transactions match your spend policy, making FinOp audits faster and easier.
- Implement cutting-edge technology: While not all challenges will be solved by software, selecting the right software solutions can eliminate manual processes, save you time, and boost transparency. Leveraging new innovations in AI, cloud computing, blockchain, ERP software, and automated accounting solutions can all streamline your FinOps workflows.
Support Your FinOp with Accurate Spend Records
It is important for FinOps to have access to required documents and authority to act in your interests. This necessitates open communication and a full production of your organization’s financial records. As compliance regulations continually evolve, maintaining this connectedness will aid in maintaining a healthy, compliant business operation.
The cornerstone of success for any FinOp professional, whether outsourced or in-house, is through correct and thorough documentation. To achieve clarity and transparency—as well as follow the FinOp framework—having the right financial management software that provides transparent and optimized reporting will make things simpler.
Discover how TeamPay can play a part in your FinOp journey through its comprehensive accounting automation and book a demo today.
